New Money for a New World

by Bernard Lietaer

  Other possible consequences of the global banking crisis of 2008 were likely averted by means of massive governmental support for the financial sector. This was immediately followed by large-scale Keynesian stimuli to avoid a deflationary depression. Both these actions have, however, resulted in enormous budgetary deficits and additional public debt. In other words, excessive debt in the financial sector was “solved” by more debt in the public sector. In an ironically compounded next step, the financial sector has now turned against its savior of a year or so earlier, waving the spectre of defaults back at governments.

  The threat of debt to an economy is clearly not an unknown one; only the scale has been increased over the centuries. In the 18th century, Wealth of Nations author, Adam Smith, warned: “When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their being fairly and completely paid.”281 A more ominous caution still comes from noted economist Ludwig von Mises: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the monetary system involved.”282 In other words, in continuing as is, a major economic crash appears unavoidable. The only remaining question regarding the crisis is the time frame.

  Withdrawal Pains?

  A lead editorial by The Economist in June 2010 made the claim that “Debt is as powerful a drug as alcohol and nicotine…Weaning rich countries off their debt addiction will cause withdrawal symptoms. Austerity does not appeal to voters, who may work off their frustrations on politicians and (worse) foreigners.”283 If we remain within the box of monetary orthodoxy, this statement will not only certainly prove true, but is in actuality only a very mild assessment of the situation we have created.

  As forecast a decade ago, the convergence of global megatrends will oblige us to rethink our monetary system before 2020. The case then was that our monetary system will prove incapable of answering the following money questions:

  How can we provide the elderly with sufficient money to match their longevity?

  What can we do when jobs become really scarce?

  How can we resolve the conflict between financially driven short-term planning and long-term needs?

  How can we deal with systemic financial and monetary instability?

  More than a decade later these questions and the issues they refer to have become more urgent and imperative than ever.

  What is now being predictably added to our challenges are massive pressures on governments to reduce their deficits. As of 2011, talks of neo-Keynesian stimuli are over, while deficit reductions are in. This austerity will induce a prolonged period of job scarcity, much longer and painful than most people expect. Among other things, high unemployment is directly linked to housing problems, one of the major triggers of the 2008 crisis. Housing recoveries do not take place unless there is sustainable job growth.

  Our view is that we are living through a variation of what took place seven decades ago. Today, we tend to describe the Great Depression as starting with Black Friday in 1929, followed by a continuous period of economic stress that stretched painfully on for most of the 1930s. That was not, however, the way it was perceived at the time by policy makers, the media, or citizens. People who lived through that period experienced it as a long succession of small ups and downs. Short-term improvements and hopes that were triggered by new government or private initiatives were each subsequently dashed by subsequent disappointment.

  We are currently on an eerily similar track. Waves of stories about “green shoots,” amplified by the media and politicians, are each dispelled by subsequent, unexpected bad news. Big hopes that have been pinned on governmental stimulus programs are now dashed when austerity measures are, by necessity, implemented.

  Another important consideration is the psychological, social, and political consequences of this state of affairs, which is not easy to fathom. But one should expect large-scale social unrest in a number of countries, which historically plays into the hands of extremist political parties and populist leaders. History also teaches us that there is a high risk that such scenarios end up being resolved in one way or another through wars. To repeat, President Roosevelt himself admitted that it was only through involvement in World War II that the United States managed to finally extract itself from the Great Depression.

  What is the proposed solution by the financial system, working of course within the existing paradigm, for solving excessive governmental deficits? It is privatization.

  THE U.S. PLAN—P3s

  The conventional strategy currently proposed by the financial sector involves nothing less than the systematic privatization of most publicly owned infrastructures in the United States. The mechanism, called Public-Private Partnerships (P3s), consists of the sale of most existing publicly owned highways, roads, bridges, tunnels, sewage and water treatment facilities, and more, all occurring through a series of existing and specially created funds. This is not some hypothetical possibility. This supposed “solution” is already being implemented in Illinois, Florida, and California, with 40 other states waiting to follow suit.

  Only months after the near meltdown in the Fall of 2008, 18 American financial companies including Carlyle, Abertis, Morgan Stanley, Freshfields, and Allen & Overy prepared a document entitled “Benefits of private investment in infrastructure.”284 In it are contained all the financial and legal details for a systematic privatization strategy to be applied in the United States. The scope of this strategy was summarized in the article in Euromoney entitled: “The Road to wiping out the U.S. Deficit” Some quotes follow.

  In 2009, the US government has spent $1.4 trillion more than it received in taxes and raised in debt. There are very few options left. So we will see a gravitation towards new P3s. If one assumes that the federal government will not be selling the navy or the municipalities their schools, there is still an immense amount of assets that can be sold. For instance, the value of all the highways and roads owned by states and municipalities is $2.4 trillion. There are $550 billion of sewerage assets at state and local levels along with a further $400 billion of water assets. Even at the federal level there is $42 billion-worth of amusements and recreation assets. And in the real estate sector, the federal, state and local governments own assets worth $1.09 trillion.285

  Traditionally, the main obstacle for the sale of public assets came from the political sector, as it alienates voters. More recently, however, the political landscape with regard to P3s has changed (see insert).

  Euromoney P3s Data Points

  The following quotes and data offer some illustration of the extent of development of P3s in the United States as of early 2011.286

  “The moment the political pain from cutting services is more than the votes lost in selling assets, this market will take off…At grass-root level, that political pain threshold has been reached.

  “As California lurches through another budget crisis, Governor Arnold Schwarzenegger has put on the block assets including prisons, roads and windfarms.

  “Indiana sold the Indiana Toll Road in 2006 to Cintra and Macquarie for $3.8 billion.

  “In Chicago, mayor Richard Daley has embraced asset sales with a fervor not matched anywhere else. He sold a 99-year lease to run the Skyway in 2005 for $1.83 billion to a consortium also comprising Macquarie and Cintra. He subsequently tried to sell Chicago’s Midway airport for $2.5 billion in 2008, and in 2009 successfully sold the city’s parking system in a deal that raised $1.1 billion. The Chicago parking deal was a huge success in every way but one: the transition from public to private ownership caused massive disruptions and a public outcry from residents about a 400 percent increase in the tariffs.

  “Transactions are now underway in Hartford, Harrisburg, Indianapolis, Pittsburgh, Las Vegas and Los Angeles.”

  In essence, politici
ans realize that the political cost in not doing this is greater than in doing it. The tipping point has been reached.

  Another traditional opponent to the sale of public assets are labor unions. But, like the political sector, unions are showing signs of coming around to the idea of privatized infrastructure. The reason for this about face is predictably financial. Financiers are now offering union pension funds access to a share of the deals. “A quarter of the assets of the $4 billion Macquaurie Infrastructure Partners has come from union pension funds…In November 2009, Carlyle closed a deal with co-investment of the Service Employees International Union (SEIU).”287

  One can also expect that the financial pressures on municipalities, states, and the federal governments will continue to build up for as long as needed to implement this plan. The only likely exceptions are with regard to military facilities and locally owned primary and secondary schools. Everything else is being considered for sale. How will people react when the streets on which they live become electronic toll roads? Can one avoid wondering about the price the White House or State Capitols will fetch in a fire sale market, or under what conditions the government will be able to rent its real estate back after the sale?

  It is only fair to note that there are important instances in which privatizations can be successful and beneficial, as has been proven in the case of telecoms and mobile phone businesses. But not all privatizations have proven desirable for citizens. Whatever one’s particular viewpoint, should the case for privatizing most of an existing national infrastructure not be worthy of at least some democratic debate? Or will this not even be possible during a sudden financial emergency?

  There is no reason to believe that such policies would be limited to the United States. As part of the IMF loan of 2011, Greece had to commit to 50 billion euro worth of privatizations. Another example is Italy where the government of Silvio Berlusconi sold assets that have been in state ownership for centuries.288 Neither should we expect that such sales of national assets to the financial sector will remain voluntary. After all, transactions of this kind were common practice as part of conditionalities to developing nations seeking IMF support during the 1980s and 1990s. Similar types of conditionalities regarding privatization could be adopted in the future. It bears mentioning that the main function of the IMF is to safeguard the interests of the banking sector. The IMF is therefore an enforcer of the existing paradigm.

  Next Questions

  Some questions beg consideration regarding the consequences of this privatization evolution. What, for example, happens after such a strategy has run its course, say over the next decade, and almost everything has been privatized? Why will governments then be more creditworthy when they will have to pay rent on everything they use?

  This coming decade happens to be the very one in which governments will be required to address some very critical issues. One such issue is the need to birth a post-carbon economy, which the world’s scientists claim is needed in order to avoid an irreversible global climate change and biodiversity collapse. The trillion-dollar question becomes: what can the public sector realistically do to meet such an unprecedented challenge, when governments are struggling for financial survival?

  From another perspective, why should anybody bother to vote for a government that has become structurally and financially incapable of significant actions?

  Another question, made in the form of a request, came from President Obama when he presented the U.S. budget for 2010: “We simply cannot continue to spend as if deficits don’t have consequences. In order to meet this challenge, I welcome any idea.”289

  Unfortunately, there are no new ideas, nor can there be, within the context of the given paradigm. Moreover, in a system with no self-correcting device except explosion, a crash such as that predicted by Von Mises is inevitable. The Wära, Wörgl, and the WIR offer lessons from which we have not yet learned.

  CLOSING THOUGHTS

  We end Part II of this work by reiterating a few paragraphs presented in Chapter One.

  This book recounts the story of two worlds and two paradigms. It offers a brief analysis of current conditions and the logical outcome of attempting to solve existing problems using the same thinking that created many of our concerns in the first place.

  The main body of this work, however, considers another prospect for society and the systematic means by which it can be pragmatically realized.

  This other world is one in which the long-term interests of humanity and the sustainability of our planet balance the short-term interests of business and industry; where there is meaningful work for all and time for ourselves, our families, and our communities; where the upbringing and education of our children and quality care for our elders are realized and compensated for in equal measure to other forms of employment so vital to society. This other world holds dear the diversity and sanctity of all life and the life-affirming aspects of what it is to be fully human, and consequently, more humane.

  The potential for just such a prospect is not only possible but is actually achievable within the span of a single generation. Many of the elements required for this to happen already exist. Also required is a wide assortment of innovative monetary tools, similar to those used in Curitiba, Brazil, that are made available to us quickly, safely, and inexpensively, by means of a greater understanding of our money.

  PART III - THE MYSTERY OF MONEY

  To find the soul of modern man and woman, begin by searching into

  those irreducibly embarrassing facts of the money complex,

  that crazy crab scuttling across the floors of silent seas.

  ~JAMES HILLMAN

  CHAPTER NINETEEN - Archetypes

  What lies behind us and what lies before us

  are small matters compared to what lies within us.

  ~RALPH WALDO EMERSON

  Up until this juncture in our exploration, we have dealt with money as an exterior reality, something that shapes society “out there.” In Part III, we explore how money connects “in here,” inside our own psyche, where the engine driving so much of our lives resides. Indeed, we need to become aware of the way monetary systems shape our collective emotions—or perhaps, how collective emotions shape our choices in monetary systems—so that we can make conscious choices in moving forward.

  When assessing fundamental change in our monetary system, we need to address some pertinent questions, such as:

  Why is the peculiar kind of monetary system we have today considered obvious by so many cultures?

  Where does the dominant power of money emerge from?

  Are greed and fear of scarcity actually indelible reflections of human nature and material reality, and if not, what is it that engenders and reinforces these specific collective emotions?

  In short, what are the origin and mechanism of the emotional dimension of money?

  We wish to caution the reader that the following exploration will put us in touch with one of the foremost taboos of Western society. Inquiries about how much money someone has, or where it comes from, are considered even more inappropiate nowadays than the topic of sexuality. Talking about a taboo is hazardous. By definition, pointing to a society’s shadows risks upsetting some readers. We ask that each of you please take responsibility for the emotions that may arise along the way. We believe, however, that it is by shedding light on the above-cited questions that we can achieve the degrees of freedom necessary to reenvision our money in depth.

  OUR COLLECTIVE INHERITANCE

  The recent mapping of the human genome reveals the extraordinary likeness of all human beings. If the DNA of each person were a book of 100 pages, the differences between our individual books would be measured not by chapters or pages, but by little more than a phrase or short sentence. While our covers—our outward appearances—might vary considerably, more than 99.9 percent of our wording would instead be identical. Genetically, at least, it is quite accurate to affirm that the bonds that unite us as a species far exceed any a
nd all things that differentiate us as individuals, whether through our race, nationalities, cultures, or beliefs.290

  Our commonality is to be found not only in our heritage, biochemistry, and physiology, but in our psyches as well.291 While much of our identity is unique and influenced by individual circumstance, there also exist many predispositions, behaviors, and values that belong to the human race in general. Just as apes, bees, and cats are each born with certain innate traits common to their species, so do humans enter life with certain emotions, propensities, and behavior patterns that are universally “human.” Our psychological common base, the so-called “collective unconscious,” contains the vast heritage of humankind’s evolution, born anew in every individual.